Russia Resumes Bashneft Privatization To Plug Budget Gap

Russia will resume the procedure to sell its controlling stake in oil firm Bashneft, First Deputy Prime Minister Igor Shuvalov said on Friday - less than two months after Moscow had decided to postpone the privatization – signaling that Russia needs some cash to fill in its depleting coffers.

The Russian government is also immediately taking steps to prepare the sale of 19.5 percent in Rosneft, Shuvalov said at a meeting with investors in Sochi, whose transcript was posted on the government website.

In August of this year, reports were circulating that Russia may delay the privatization of a stake in Rosneft, to hold out for higher prices.

On Friday, Shuvalov said that Russia hopes to receive more than US$15.9 billion (1 trillion rubles) from these transactions by the end of this year. Should those privatization deals take place, they would allow Russia to considerably improve its macroeconomic indicators, Shuvalov said. The proceeds from the Rosneft privatization will be counted as federal budget revenues, and the proceeds from the Bashneft sale will help to cover the federal budget deficit, the Russian government official added.

Shuvalov also said that Rosneft would not be prevented from bidding to buy the Bashneft stake that is up for sale.

Two months ago, when Russia decided to postpone the sale of the stake in Bashneft, market conditions were not the only reason - according to market talk - and the rivalry between Rosneft and Lukoil over the purchase of Bashneft was also a factor.

But now, widening budget gaps are pushing Russia to proceed with the sales of the Bashneft and Rosneft stakes.

On Monday, Reuters quoted a Russian government source as saying “money is needed urgently”. Another source in the government has said: “The sale of Bashneft to Rosneft is a done deal.”

According to Shuvalov, foreign investors have expressed interest in buying into Rosneft, while Bashneft has attracted mostly Russian bidders.